Remortgaging when you’re self-employed is pretty much the same as any other remortgage — with one important difference: while someone who’s employed will usually only need their last three months’ payslips to prove their income, when you’re self-employed, you’ll need to bring a bit more paperwork to the party.
Most lenders want to see at least three years of accounts — ideally prepared by an accountant so they know they’re accurate — to make sure you can afford the repayments. Other lenders might ask for two years, and a very select few may even accept one, most likely only if you’ve been self-employed for less than two years, with supporting evidence – like Habito!
No matter the number, the same thing rings true: when you’re self-employed and remortgaging, it’s always better to be prepared. To help, let’s go through everything you need to know about remortgaging while self-employed.
Can I remortgage if I’m self-employed?
In short: definitely!
Remortgaging when you’re self-employed might require a tad more prep work than your employed counterparts, but if you can prove your earnings and point to a solid self-employment track record, you should have access to the same deals and rates as everyone else.
How does the self-employed remortgage process work?
Good news! Beyond the extra admin, the remortgage process is exactly the same:
- Around 3-6 months before your current mortgage deal ends, start shopping around. You’ll want to time your remortgage so that you avoid moving onto your lender’s standard variable rate (SVR).
Note: A standard variable rate is like a lender’s default rate – it’s what they’ll slip you onto when your current deal ends, unless you switch to a new deal (remortgage). Each lender sets its own SVR, and their rates tend to be a lot higher than interest rates you’ll find with a deal (and therefore more expensive). They’re also variable (it’s in the name!), so your repayments could go up and down each month.
- You can either decide to stay with your current lender on a new deal (often referred to as a “product transfer”) or switch to a different lender. While product transfers might mean a bit less paperwork, it’s always worth checking to see what’s out there – straying often ends up saving you quite a bit of money!
- If you do opt for a product transfer (and stay with your existing lender), you won’t have as many hoops to jump through. They’ll know everything they need to know about you and you won’t appear as risky provided you’ve been making your mortgage payments on time.
- If you switch lenders, the new lender will carry out much the same eligibility checks as when you first got a mortgage – proof of income, credit score, that sort of thing. All being well, your new mortgage lender will offer you a deal you like, they’ll pay off your old mortgage, and you’ll start making payments to the new lender.
The entire remortgage process can take between 4 and 8 weeks (sometimes less, sometimes more). So it’s always a good idea to give yourself plenty of time to remortgage before your current deal ends.
What counts as self-employed in the eyes of a lender?
Lenders will consider you as self-employed if you own more than 20% of the company where you earn your main income – you could be a sole trader, contractor, or freelancer, in a business partnership, or a director of a limited company.
If they do consider you self-employed, you’ll need to provide your SA302s/tax calculations and tax year overviews, usually for at least the past two years, as proof of your income.
What if I’m newly self-employed? Can I still remortgage?
It depends on how “newly”!
If you’re on a two-year deal and you took the plunge and became your own boss soon after getting your mortgage, you’ll likely have at least one year’s accounts and a completed tax return in the bag — with a second year not far behind. This, along with proof that you’ve got more work in the pipeline (signed contracts, for example) may be enough to remortgage with some lenders.
That said, if you haven’t yet filled out a tax return for your first year of trading, remortgaging can be trickier. That’s because, from a lender’s point of view, there’s no definitive proof of what your income is.
Without that first year’s tax return to scrutinise, most lenders won’t be able to judge your affordability (in other words, your ability to make your repayments). Even if your new venture is smashing targets left and right in its first few months, mortgage lenders are risk-averse! They’ll want to see a bigger sample size before lending to you such a significant amount of money.
Now – if this is your situation, don’t get too disheartened. There are some specialist lenders out there who might be able to help you. Remortgaging with your existing lender is also an option, as you’ll already have a history of making repayments while self-employed (even if it’s only for a short period).
So while choices will be more limited – and the best deals will probably be off the table for the time being – you can still remortgage in some circumstances if you’re newly self-employed.
Is it harder to remortgage if you're self-employed?
There’s no denying that being self-employed can make remortgaging more challenging. Proving your income and satisfying a lender’s criteria for self-employed customers (which can change from one lender to the next) adds an extra layer of difficulty — but, crucially, it’s not impossible.
Here are a few tips to help make the self-employed remortgage process a little smoother.
Self-employed remortgage tips:
1. Get your paperwork in order as soon as you can
Depending on when you became self-employed, it can be a race against time to get the accounts and tax returns you need before it’s time to remortgage. That’s why it’s a good idea to register with HMRC and start keeping clear and up-to-date records as soon as you can.
2. Work on your credit record
Just like when you applied for your mortgage the first time around, a good credit score goes a long way towards showing you can responsibly handle borrowing and repaying money. This is especially useful to demonstrate when you’re self-employed – a strong credit history means one fewer obstacle to remortgaging.
Here’s a rundown of what you can do to improve your credit score.
3. If you can, get your loan-to-value (LTV) lower
Your loan-to-value (LTV) is the size of your mortgage compared to your property’s value. So if your home is worth £200,000 and your outstanding mortgage is £150,000, your LTV is 75% (the mortgage divided by the value). The lower your LTV, the less risky you’ll look to a lender – because you’re borrowing less, and the interest rates will be lower, which means your repayments will be more affordable.
While in a lot of cases, there’s not a lot you can do to move your LTV, if you’re close to a lower LTV “band” (lenders think about LTV in increments of 5%), it might be worth thinking about paying off a bit more than your monthly repayments (in other words, overpaying), if it fits into your budget. Just make sure to check your deal so you know how much you can overpay without having to pay an early repayment penalty!
4. Show evidence of future work and contracts
If you’re struggling to provide a full two years worth of accounts, evidence of future contracts or work lined up with reliable, ongoing clients can sometimes help plug the gap.
5. Use a whole-of-market mortgage broker
Trying to navigate the self-employed remortgage process can be a minefield — especially when lenders can’t seem to agree on how many years of accounts they need to see before they consider your application.
That’s why working with a mortgage broker that searches the whole market (like Habito!) can save you the headache of searching for and picking the right deal for you. They’ll look at your situation, point out what lenders might consider risky, and help you choose a deal that you’re much more likely to get accepted for.
Need help with your self-employed remortgage?
We take the legwork out of finding the best remortgage deals for self-employed people just like you — and we won’t charge you a penny. Habito handles the entire process, from the initial search all the way through to dealing with the legal stuff, so you can get on with being your own boss. Find out how we can help.